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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Summary of Carrying Amount and Fair Value of Ambac's Financial Assets and Liabilities

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of June 30, 2022 and December 31, 2021, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

						Carrying Amount						Total Fair Value						Fair Value Measurements Categorized as:
June 30, 2022:																		Level 1						Level 2						Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations						$	60					$	60					$	—					$	60					$	—
Corporate obligations						644						644						—						633						11
Foreign obligations						81						81						81						—						—
U.S. government obligations						62						62						62						—						—
Residential mortgage-backed securities						197						197						—						197						—
Collateralized debt obligations						132						132						—						132						—
Other asset-backed securities						236						236						—						166						69
Fixed maturity securities, pledged as collateral:
U.S. government obligations						15						15						15						—						—
Short-term						70						70						70						—						—
Short term investments						452						452						450						2						—
Other investments (1)						598						590						72						—						—
Cash, cash equivalents and restricted cash						37						37						37						—						—
Derivative assets:
Interest rate swaps—asset position						39						39						—						3						37
Warrants						1						1						—						—						1
Other assets-Loans						2						2						—						—						2
Variable interest entity assets:
Fixed maturity securities: Corporate obligations, fair value option						2,533						2,533						—						—						2,533
Fixed maturity securities: Municipal obligations, available-for-sale						109						109						—						109						—
Restricted cash						2						2						2						—						—
Loans						2,144						2,144						—						—						2,144
Derivative assets: Currency swaps-asset position						51						51						—						51						—
Total financial assets						$	7,465					$	7,458					$	789					$	1,353					$	4,798
Financial liabilities:
Long term debt, including accrued interest						$	2,748					$	2,065					$	—					$	2,052					$	13
Derivative liabilities:
Interest rate swaps—asset position						(1)						(1)						—						(1)						—
Interest rate swaps—liability position						59						59						—						59						—
Futures contracts						3						3						3						—						—
Liabilities for net financial guarantees written (2)						(968)						(348)						—						—						(348)
Variable interest entity liabilities:
Long-term debt (includes $3,184 at fair value)						3,340						3,377						—						3,215						161
Derivative liabilities: Interest rate swaps—liability position						1,476						1,476						—						1,476						—
Total financial liabilities						$	6,658					$	6,632					$	3					$	6,802					$	(174)

						Carrying Amount						Total Fair Value						Fair Value Measurements Categorized as:
December 31, 2021:																		Level 1						Level 2						Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations						$	340					$	340					$	—					$	340					$	—
Corporate obligations						613						613						1						600						12
Foreign obligations						87						87						87						—						—
U.S. government obligations						45						45						45						—						—
Residential mortgage-backed securities						252						252						—						252						—
Collateralized debt obligations						128						128						—						128						—
Other asset-backed securities						265						265						—						187						79
Fixed maturity securities, pledged as collateral:
U.S. government obligations						15						15						15						—						—
Short-term						105						105						105						—						—
Short term investments						414						414						369						46						—
Other investments (1)						690						683						106						—						—
Cash, cash equivalents and restricted cash						21						21						21						1						—
Derivative assets:
Interest rate swaps—asset position						76						76						—						5						71
Other assets-loans						3						3						—						—						3
Variable interest entity assets:
Fixed maturity securities: Corporate obligations, fair value option						3,320						3,320						—						—						3,320
Fixed maturity securities: Municipal obligations, available-for-sale						136						136						—						136						—
Restricted cash						2						2						2						—						—
Loans						2,718						2,718						—						—						2,718
Derivative assets: Currency swaps—asset position						38						38						—						38						—
Total financial assets						$	9,268					$	9,261					$	750					$	1,732					$	6,202
Financial liabilities:
Long term debt, including accrued interest						$	2,806					$	2,598					$	—					$	2,575					$	22
Derivative liabilities:
Interest rate swaps—liability position						94						94						—						94						—
Liabilities for net financial guarantees written (2)						(866)						(112)						—						—						(112)
Variable interest entity liabilities:
Long-term debt (includes $4,056 at fair value)						4,216						4,255						—						4,086						169
Derivative liabilities: Interest rate swaps—liability position						1,940						1,940						—						1,940						—
Total financial liabilities						$	8,190					$	8,775					$	—					$	8,695					$	79

(1)Excluded from the fair value measurement categories in the table above are investment funds of $518 and $577 as of June 30, 2022 and December 31, 2021, respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity securities with a carrying value of $8 and $8 as of June 30, 2022 and December 31, 2021, respectively, that do not have readily determinable fair values and have carrying amounts determined using the measurement alternative.

(2)The carrying value of net financial guarantees written includes financial guarantee amounts in the following balance sheet items: Premium receivables; Reinsurance recoverable on paid and unpaid losses; Deferred ceded premium; Subrogation recoverable; Insurance intangible asset; Unearned premiums; Loss and loss expense reserves; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.

Summary of Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the periods presented in 2022 and 2021. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

Level 3 - Financial Assets and Liabilities Accounted for at Fair Value
																								VIE Assets
						Investments						Other Assets						Derivatives						Investments						Loans												Total
Three Months Ended June 30, 2022:
Balance, beginning of period						$	86					$	—					$	52					$	3,131					$	2,469											$	5,738
Total gains/(losses) realized and unrealized:
Included in earnings						—						—						(12)						(365)						(83)												(460)
Included in other comprehensive income						(5)						—						—						(215)						(174)												(395)
Settlements						—						—						(2)						(18)						(68)												(88)
Balance, end of period						$	81					$	—					$	38					$	2,533					$	2,144											$	4,795
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	—					$	—					$	(12)					$	(365)					$	(83)											$	(460)
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	(5)					$	—					$	—					$	(215)					$	(174)											$	(395)
Three Months Ended June 30, 2021:
Balance, beginning of period						$	76					$	1					$	65					$	3,103					$	2,948											$	6,194
Total gains/(losses) realized and unrealized:
Included in earnings						—						—						11						87						65												164
Included in other comprehensive income						4						—						—						5						5												14
Settlements						—						(1)						(2)						(19)						(76)												(98)
Balance, end of period						$	80					$	—					$	74					$	3,175					$	2,943											$	6,273
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	—					$	—					$	11					$	87					$	65											$	164
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	4					$	—					$	—					$	5					$	5											$	14

Level 3 - Financial Assets and Liabilities Accounted for at Fair Value
																								VIE Assets
						Investments						Other Assets						Derivatives						Investments						Loans												Total
Six Months Ended June 30, 2022:
Balance, beginning of period						$	91					$	—					$	70					$	3,320					$	2,718											$	6,199
Total gains/(losses) realized and unrealized:
Included in earnings						1						—						(29)						(458)						(178)												(664)
Included in other comprehensive income						(10)						—						—						(311)						(251)												(572)
Settlements						(1)						—						(4)						(18)						(145)												(168)
Balance, end of period						$	81					$	—					$	38					$	2,533					$	2,144											$	4,795
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	1					$	—					$	(29)					$	(458)					$	(178)											$	(664)
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	(10)					$	—					$	—					$	(311)					$	(251)											$	(572)
Six Months Ended June 30, 2021:
Balance, beginning of period						$	78					$	1					$	84					$	3,215					$	2,998											$	6,376
Total gains/(losses) realized and unrealized:
Included in earnings						1						—						(6)						(50)						74												18
Included in other comprehensive income						3						—						—						31						30												63
Settlements						(1)						(1)						(4)						(19)						(160)												(185)
Balance, end of period						$	80					$	—					$	74					$	3,175					$	2,943											$	6,273
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	1					$	—					$	(6)					$	(50)					$	74											$	18
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date						$	3					$	—					$	—					$	31					$	30											63

Summary of Gains and Losses (Realized and Unrealized) Relating to Level 3 Assets and Liabilities Included in Earnings

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:

						Net Investment Income						Net Gains (Losses) on Derivative Contracts						Income (Loss) on Variable Interest Entities						Other Income or (Expense)
Three Months Ended June 30, 2022:
Total gains (losses) included in earnings for the period						$	—					$	(12)					$	(448)					$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date						—						(12)						(448)						—
Three Months Ended June 30, 2021:
Total gains (losses) included in earnings for the period						$	—					$	11					$	152					$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date						—						11						152						—
Six Months Ended June 30, 2022:
Total gains or losses included in earnings for the period						$	1					$	(29)					$	(636)					$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date						—						(29)						(636)						—
Six Months Ended June 30, 2021:
Total gains or losses included in earnings for the period						1						(6)						24						—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date						—						(6)						24						—

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Tabular presentation of Fair value assets and liabilities measured on recurring basis unobservable input reconciliation.

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Tabular disclosure of the amount of gains or losses for the period included in earnings or resulted in a change to net assets, have arisen from the use of significant unobservable inputs (level 3) to measure the fair value of assets, liabilities, and financial instruments classified in shareholders' equity.

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